Planning Your Retirement Income: What to Expect from CPP and OAS

When you retire, will you have a workplace pension plan to rely on?

For many Canadians, the answer is “no.”

That’s why it’s more important than ever to understand what other sources of income you can rely on in retirement and how you can supplement those funds.

Learning about government income is a good place to start. One of the most common questions I hear from members is, “How much will I get from the government when I retire?” I’ve outlined the basics of the Canada Pension Plan (CPP) and Old Age Security (OAS) below.

Canada Pension Plan (CPP)

Almost all individuals who work in Canada contribute to the Canada Pension Plan (CPP).

Many people do not know how much they can receive from government pensions and many more are concerned that the funds will not be there when they retire.

There is no cause for alarm. The Canadian Pension Plan is funded by employees and employers based on employment income. Though the funds are collected by the government it is not government funded. In 2010, the government’s chief actuary confirmed that the CPP is sustainable for the next 75 years, despite bumpy investment returns and millions of baby-boomers retiring.

Old Age Security is funded through general tax revenues and with recently announced changes increasing the start age to 67, should allow it to be well funded for the foreseeable future.

CPP: How Much is It Worth?

You can apply for and receive a full CPP retirement pension at age 65, but you could also receive it as early as age 60 with a reduction, or as late as age 70 with an increase.
The average amount of income from CPP is $607.33 per month for an annual total of $7,287.96.*

Collecting Before Age 65CPP allows you to start receiving payments as early as 60, however there is a significant permanent reduction to your monthly payments. The reduction for 2014 is .56% per month up until age 65, totaling a reduction of 33.6%.

Collecting After Age 65If you don’t yet need your government pension, you can defer up to age 70. This will significantly raise your monthly payments. Choosing to delay past age 65 means you will receive a monthly increase of .7% for every month up to age 70. This means that if you don’t start receiving your CPP until 70, you will receive 42% more than if you started taking it at 65.

What is Your Contribution Level?

You can find out your contribution levels on your CPP statement of contributions by visiting a Service Canada office, making a request by mail, or online through the Service Canada portal.

Old Age Security (OAS)

Canada’s Old Age Security (OAS) pension is a monthly payment available to most people 65 years of age and older who meet the Canadian legal status and residence requirements.

Your employment history is not a factor in determining eligibility: you can receive the OAS pension even if you have never worked or are still working.

If you were resident of Canada for less than 40 years after the age of 18, you will get a reduced amount of OAS.

OAS: How Much Is It Worth?

The maximum OAS is $551.54 per month (regardless of marital status) for an annual total of $6,618.48**.

The start date for Old Age Security pension will gradually increase from the age of 65 to 67 over six years, with full implementation by January 2029. This change will affect people born in 1958 and later.

Final Thoughts

Between CPP and OAS, the average Canadian can expect an annual income of $13,906.44.
Is this enough for you to have a comfortable retirement? Probably not, but it’s a strong base of funds to build a financial plan upon. If you expect to need more, RRSPs and TFSAs can help you build a larger base of income for your retirement.

Learn More

*Source: Service Canada. Average Canada Pension Plan (CPP) retirement pension amount for new beneficiaries for January 2014 is $633.46 per month
**Source: Service Canada. Old Age Security pension and benefits — Monthly payment amounts and maximum annual income — October to December 2014